JUR5260 Autumn 2008 – Remedies
1. Discharge
Repudiatory breach entitles the innocent party to treat h/self as discharged from their
further obligations to perform the contract. (Dealt with in previous lecture)
2. Damages
Any breach of contract gives innocent party right to damages from party in breach.
Substantial damages are monetary compensation for loss suffered as consequence of
other party’s breach.
To obtain substantial damages from other party, innocent party must show that they have
suffered loss as result of breach (issue of “remoteness”) and the amount of loss (issue of
“measure”). It goes without saying that there must be a causative link between the loss
and the breach (issue of “causation” – not dealt with in this lecture).
The party in breach may argue that innocent party failed to mitigate loss.
2.1 Remoteness
The innocent party is only entitled to damages for loss which is not too remote a
consequence of the breach.
Point of departure = rule in Hadley v. Baxendale (1854). Damage or loss must either
arise naturally from breach (i.e., according to usual course of things) or the damage/loss
must be such as may reasonably be supposed to have been in contemplation of both
parties, at time they made contract, as probable result of breach.
Subsequent interpretations of this rule:
See Victoria Laundry (Windsor) Ltd. v. Newman Industries Ltd. (1949) (CA per
Asquith LJ). Only “reasonably foreseeable loss” may be recovered. Whether or not loss
was such depends on knowledge possessed by party in breach. This knowledge may be
either:
(a) imputed – i.e., what every person is assumed to know with respect to “natural”
and “ordinary course of things”; or
(b) actual knowledge – deriving from special knowledge of facts from which one
would infer probability of exceptional loss.
HL approved of Victoria Laundry in The Heron II (1969) but disapproved of use of
phrase “reasonably foreseeable” as this = test of remoteness in tort. HL held that latter
test of remoteness ≠ test of remoteness in contract. In contract, test of remoteness =
whether loss is “within the reasonable contemplation of the parties”, at time they made
contract, “as liable to result”.
Distinction challenged by Denning in H. Parsons (Livestock) Ltd. v. Uttley, Ingham &
Co. Ltd. (1978) but remains valid.
Distinction means that remoteness test under contract is stricter.
If defendant ought reasonably to have contemplated the kind of damage that would result
from breach, they cannot claim that they could not have contemplated the extent of that
damage: see, e.g., Parsons v. Uttley Ingham; Wroth v. Tyler (1974)).
The principle in question is difficult to apply.
See Victoria Laundry case for example of remoteness rule working in practice
Cf. Kemp v. Intusan Holidays (1987).
2.2 Measure of damages
2.2.1 Loss of bargain – expectation loss
Normal aim of court is to put the innocent party in position they would have been in had
the contract been properly performed: see Robinson v. Harman (1848).
Two usual methods of assessing this loss are either (a) difference in value; or (b) cost of
cure. Court will ordinarily try to apply the more appropriate of these methods. However,
in some cases, neither method is appropriate. See, e.g., Ruxley Electronics and
Construction Ltd. v. Forsyth (1995).
Substantial damages will not be withheld simply because they are difficult to assess –
Chaplin v. Hicks (1911); cf. McRae v. Commonwealth Disposals Commission (1950).
2.2.2 Alternative method of assessing damages – reliance loss
The normal measure is loss of expectation. Reliance loss may be sought where loss of
expectation is difficult to prove.
Aim of reliance loss is to put innocent party into position he would have been in had the
contract never been made: see Anglia TV v. Reed (1972); McRae v. Commonwealth
Disposals Commission (1950).
N.B.: If innocent party had made a “bad bargain” they cannot repair this bargain by
claiming reliance loss. See C & P Haulage v. Middleton (1983).
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It is up to party in breach to show that innocent party would not have recovered their
expenses even if contract had not been broken. See CCC Films (London) Ltd. v. Impact
Quadrant Films Ltd. (1985).
2.2.3 Other types of consequential loss
(i) Disappointment / mental distress / injured feelings – damages for these (when flowing
from breach of contract) are not generally awarded: Addis v. Gramophone Co. Ltd.
(1909). However, damages for such may be awarded if contract itself was supposed to
provide peace of mind or freedom from distress, e.g., holiday contracts: see, i.a., Jarvis v.
Swan Tours Ltd. (1973); Bliss v. South East Thames Regional Health Authority
(1985); cf. Hayes v. James & Charles Dodd (1990).
(ii) Physical inconvenience and discomfort / personal injury – damages usually
recoverable: Bailey v. Bullock (1950)
(iii) Loss of reputation – damages usually not recoverable: see Addis v. Gramophone Co.
Ltd. (above). But it may be possible to recover for loss of chance to enhance future
reputation, e.g., situation of actors: Clayton & Jack Waller Ltd. v. Oliver (1930). And
damages may be obtained for loss of reputation (“stigma compensation”) in exceptional
circumstances where loss is not too remote – e.g., when employer breaches implied term
that they would not operate a dishonest and corrupt business: Malik v. BCCI (1997).
(iv) Exemplary / punitive damages not available
2.3 Mitigation
Innocent party must take reasonable steps to mitigate their loss: British Westinghouse
Electric v. Underground Electric Co. of London (1912).
Defendant has burden of proving that plaintiff failed to mitigate: Pilkington v. Wood
(1953).
There is no duty to mitigate prior to actual breach but there may be duty not to aggravate
loss: see, e.g., White and Carter v. McGregor (1962); cf. Clea Shipping Corporation v.
Bulk Oil International Ltd. (1984).
There is no duty to mitigate in an action by a creditor to recover the price of goods
delivered.
2.4 Liquidated damages
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Parties may provide in contract itself that a specified sum shall be payable in event of
breach. If such sum = genuine pre-estimate of loss, it is recoverable even if it does not
end up representing the actual loss. This will not be so if such sum = threat or “penalty”
held by one party over other party to try to force latter to hold their side of bargain.
How to tell difference between liquidated damages clause and penalty? Construction of
clause must be “decided upon the terms and inherent circumstances of each particular
contract, judged at the time of making the contract”: Dunlop v. New Garage Motor Co.
Ltd. (1915)
Language used by parties not conclusive.
Guidelines by HL in Dunlop (above):
Sum = penalty if: (i) sum specified > greatest possible loss; (ii) a larger sum is payable
after non-payment of a smaller sum; (iii) a single lump sum is payable on occurrence of
one or more of several events, some of which may cause serious and some minor
damage.
Clause can be liquidated damages clause even if it is well-nigh impossible to precisely
predetermine loss caused by breach.
Burden of proof that sum = penalty lies on defendant: Robophone Facilities Ltd. v.
Blank (1963).
3. Remedies in equity
3.1 Rescission of contract
Contract induced by misrepresentation may be rescinded. Rescission also available in
cases of duress and undue influence.
3.2 Specific Performance
This is a decree issued by court ordering defendant to execute their contractual duty.
If party fails to comply with decree, they risk liability for contempt of court (involving
fines and sometimes imprisonment) or seizure of their property until compliance.
Traditionally, spec. perf. only granted when damages are inadequate remedy. Typically
case when thing promised is unique or irreplaceable – e.g., particular painting, piece of
land.
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Remedy is also available to enforce contractual obligation to pay sum of money: see,
e.g., Beswick v. Beswick (1968).
Specific performance not usually ordered in personal contracts services.
Specific performance not usually ordered in contracts lacking “mutuality”.
Specific performance may not be awarded where performance would require constant
supervision by the court: see, e.g., Ryan v. Mutual Tontine Association (1893) [in which
CA expressed this as a general rule]; cf. Shiloh Spinners Ltd. v. Harding (1973) [HL
rejects this as general principle]; cf. again, Co-operative Insurance Society Ltd. v. Argyll
Stores (Holdings) Ltd. (1997).
As equitable remedy, spec. perf. will not be granted if it causes hardship or if plaintiff has
not acted equitably: see, e.g., Patel v. Ali (1984).
3.3 Injunction
This is a decree by court ordering a person to do or not to do a certain act.
Injunction usually not granted if its effect is to compel a party to a contract to do
something which could not have been made subject to order of specific performance: see,
e.g., Page One Records Ltd. v. Britton (1968).
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